Profits are Falling – The Stock Market Will Follow

SLOWER EARNINGS MEAN WEAKER DOW (MarketWatch)
“…This quarter, like some recent quarters, the Dow Jones Industrial Average has both negative earnings per share (EPS) and negative revenue growth as compared to last year. The Dow Jones Industrial Average has actually been contracting for the past 12 months on a revenue basis, with barely any EPS growth whatsoever….”  Commentary at…
http://www.marketwatch.com/story/slowing-earnings-means-a-weaker-dow-2013-08-16

ECONOMIC VALUE ADDED PREDICTS…WELL, IT AIN’T PRETTY (Fortune)

“The best measure of how companies perform for shareholders is a wonkish tool called Economic Value Added, or EVA. The advantage of EVA is that it corrects the gap, so to speak, in regular GAAP accounting by gauging what's really important: whether shareholders are getting returns superior to what they'd garner putting their money in another, equally risky stock or index fund.”

“EVA Dimensions' data shows vividly…that profitability is… dropping sharply. Since 2011, return on capital has fallen to around 8.9% for non-financials, a decline of 1.1 points. It's as if stocks were caught between two powerful pincers that are now inexorably narrowing…[First, ]"Expenses may remain stable, but it's clear companies have run out of room to make major cost reductions," says Robert Corwin of EVA Dimensions.  Second, corporations are suffering a shocking drop in sales growth…

…Let's assume that the 10-year Treasury bond returns to a reasonably normal level of 4.5%. That would drive the cost of capital from the current level to around 7%. Even if the return on capital remained steady at the current 8.9%, stock prices would drop by 25%.”  Story from Fortune at…

http://finance.fortune.cnn.com/2013/08/19/stocks-valuation-eva/?iid=HP_LN

The above story on EVA is just another way of saying what numerous pundits (FactSet, Cramer, Hussman, Saut, et al.) have stated recently: Profit margins are falling.   That is bad for the markets.

WARNING – BROKEN SPECULATIVE PEAK (Hussman Funds)

“…At present, we have what might best be characterized as a broken speculative peak, in that market internals (particularly interest-sensitive groups), breadth and leadership have broken down uniformly following an extreme overvalued, overbought, overbullish syndrome. If you recall, the market also recovered to new highs in October 2007, weeks after the initial, decisive break in market internals at that time. Presently, we’re looking at the same set of circumstances. On some event related to tapering or the Fed Chair nomination, we may even see another push higher. It isn't simply short-term risk, but deep cyclical risk that is of concern. ..
…Our estimates of potential market losses are surging, and our present return/risk estimates easily fall into the worst 1% of historical data. We associate these instances with average losses in the S&P 500 approaching 50% at an annual rate, though a scattered handful of similarly weak estimates since April 2012 have been devoid of any negative outcomes at all.” - Excerpts from the Weekly Market Comment for 19 August 2013 by John Hussman, PhD.  Full commentary from Hussman Funds at…
http://www.hussmanfunds.com/

MARKET REPORT
From 10Am afterward, Monday, the S&P fell and was down 0.6% to 1646 (rounded) at the close.

VIX was up only 5% to 15.10.  At 15.1, VIX is implying a move of about 4% over the next 30-day period.  Theoretically, that move could be up or down.  Currently, I’d say the risk is down, but the low value of VIX still indicates the Options players are not yet in correction mode.

The S&P 500 closed at the 50-dMA Friday and today it fell further.   No bounce today; indeed, there was accelerated selling in the last hour when the pros are in action.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE fell to 36% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 19% of stocks advanced. 

New-lows of 459 outpaced the new-highs of 16 today leaving the spread at -443 with the 10-day change in spread trending down.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend, although a bounce is possible at any time. 

NTSM

Monday, the overall NTSM analysis was HOLD at the close.

There have been only 7-Up days in the last 20-trading days.  Some may see that as a buying opportunity tomorrow – I don’t.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Consumer Confidence Falls…More Stock Market Correction/Crash Predictions…and Stock Market Analysis

CONSUMER CONFIDENCE FALLS (Bloomberg)
“Consumer confidence in the U.S. unexpectedly dropped in August from a six-year high as Americans faced rising interest rates.  The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 80 from 85.1 in July, which was the highest since July 2007…The decline this month was the biggest since December…“Interest rates are going up a little bit, that never helps,” Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, said before the report. “But we still have the background of what looks like a still-improving housing market.”  Story from Bloomberg at…
http://www.bloomberg.com/news/2013-08-16/u-s-consumer-confidence-falls-from-a-six-year-high.html

The consensus listed at Briefing.com was for no change, i.e. 85.1.

GIANT RESET IS LOOMING FOR MARKETS (Jim Cramer, CNBC)

A "giant reset" is looming for the markets because the improving economy is simply not trickling down to companies' bottom lines, CNBC's Jim Cramer said Thursday…"We have to deal with the four walls of the corporate canvas, and they are simply not able to turn this macro positive into micro earnings gains, and that's a real conundrum, particularly when the 10-year is signaling that happy days are here again," he said…"In the end, the market comes down because of the reset," he said. "I'm in love with macro, but I'm swimming in the toxic pit here." Commentary and video from CNBC at…
http://www.cnbc.com/id/100965252

Jim Cramer is echoing the concerns posted here in recent blogs and pressed by John Hussman: earnings and revenue have been weak and this is occurring at all-time highs for the stock market. 

MARKET VALUATION LOOKS LIKE 2007: ECONOMIST (CNBC)

“Dan Seiver, editor of the Pad System Report and a professor of finance at San Diego State University, bases his long-term valuation model on Value Line's median appreciation potential, which he said has shown statistically to have predictive value of where the market is headed. "Right now, that number is relatively low. It's down in the range that it was in 2007," Seiver told "Squawk on the Street" on Thursday. "That tells me that over the next few years, the returns on stocks aren't going to be particularly good and they could even be negative." Commentary and video from CNBC at…
http://www.cnbc.com/id/100965728

MARKET REPORT
Friday, the S&P was down 0.33% to 1656 (rounded).

VIX was Down (surprisingly) 2% to 14.37.

In the NTSM section below, I noted that Sentiment is sky high and traders are buying the dip.  Apparently, so are the options players and that is pulling the VIX lower. 

The S&P 500 is 0.1% below the 50-dMA (now at 1625) at Friday’s close so we might as well say it is AT the 50-dMA.  Will it bounce as it has in the past or will it fall further? 

I think we fall from here, perhaps after a small bounce.  Volume was higher on the NYSE Friday than it has been in the last 3-weeks so some are getting concerned about this falling price on the S&P 500.  The market Internals look ugly.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE fell to 39% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 35% of stocks advanced.  With that sort of stat, I really would have expected more downside today, so perhaps Monday will be another follow-thru day and the markets will again move down.

New-lows of 316 outpaced the new-highs of 28 today leaving the spread at -288 with the 10-day change in spread trending down.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend. 

NTSM

Friday, the overall NTSM analysis was HOLD at the close, but it moved a lot closer to a sell. 

That’s rather meaningless now (for me) since the 1^st NTSM sell of this cycle was back at 1575 on 16 April and the most recent sell was 23 July at 1692. 

SENTIMENT climbed to 66%-bulls in the 5-day moving average of Guggenheim/Rydex funds I track.  Twice as many traders are betting the market will go up rather than down.  That extreme over-bullish position is negative for the markets.  So the buy-the-dip crowd is moving in at the 50-dMA, but this time I think they will be disappointed.  Even so, we’ll keep a close eye on technicals to see if we can identify a buy point if the market repeats recent history at the 50-dMA.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Philly Fed, Jobless Claims…and Stock Market Correction Commentary

PHILLY FED MANUFACTURING FELL SHARPLY, BUT STILL EXPANDING(Bloomberg)
“Manufacturing in the Philadelphia region expanded in August for the third straight month, the latest sign of an improving outlook for the industry after a slowdown earlier this year.  The Federal Reserve Bank of Philadelphia’s general economic index fell to 9.3 this month from a reading of 19.8 in July that was the highest since March 2011. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware…“The manufacturing sector is healthy, it’s chugging along,” Josh Dennerlein, an economist with Bank of America Corp. in New York, said before the report. “It’s not super-strong growth, but it’s not contracting. It’s modest.”  Full story at…
http://www.bloomberg.com/news/2013-08-15/philadelphia-fed-factory-index-fell-to-9-3-in-august-from-19-8.html

JOBLESS CLAIMS FALL (Wall Street Journal – online)

“The number of U.S. workers seeking first-time unemployment benefits fell to its lowest level since before the recession, underscoring steady gains in the labor market.  Initial jobless claims, a proxy for layoffs, decreased by 15,000 to a seasonally adjusted 320,000 in the week ended Aug. 10, the Labor Department said Thursday. The was the lowest level since October 2007, a time of financial turmoil but about two months before the formal onset of the recession…"This latest downward move provides increasingly convincing evidence that layoffs have taken another step down in recent weeks," Royal Bank of Scotland economists said in a note to clients.”  Full story from WSJ.com at…
http://online.wsj.com/article/SB10001424127887323639704579014490635146188.html

If all the news is good, why is the market falling.  See below for some ideas:

THREE REASONS THE MARKET IS PEAKING (CNBC)

“Doug Kass, president of Seabreeze Partners Management:
'… we're at the upper range for price-to-earnings multiples, we have political issues that are profoundly important, and we have some deterioration in the technicals,' and Kass believes he has all the reason in the world to be short the market right now.”
[3-Reasons]
  “Reason one: Multiples will contract…
   Reason two: Politics will spook the market…
   Reason three: History says the rally can't last…”
“…And undergirding this thesis, again, is Kass' ursine view of the global economy. "If we look at the longest bull streaks, obviously they didn't face the structural economic headwinds," he said. Any way you cut it, then, Kass believes that this market should be sold.”  Story and video at…
http://www.cnbc.com/id/100960430

STARS ALIGNED FOR ‘SERIOUS’ CORRECTION - Bouroudjian (CNCB)

“…Jack Bouroudjian, CEO of financial services holding company Bull and Bear Partners, told CNBC's Asia Squawk Box on Tuesday he was the most bearish he has ever been on the U.S. stock market...‘The market is overvalued and we've hit an inflection point. Unless we see some real strong growth numbers coming out of the economy, I'm looking at a 10 percent correction between now and October. It's time to be very defensive.’"   Story and video at…
http://www.cnbc.com/id/100957678

MARKET REPORT
Thursday, the S&P was down 1.4% to 1661 (rounded).

VIX was UP 13% to 14.73.

The Index is 0.3% above the 50-dMA (now at 1657) at Thursday’s close.  As I look over today’s stats (volume, breadth, new-hi/new-low) I see no indication that the market will turn to the upside, although a short-term bounce is always possible.  Thursday was statistically significant in price-volume action and that usually portends an up-day tomorrow, but I am less likely to put much faith in that methodology in a correction.  The market could just as likely go into a waterfall drop at this point although I don’t have any stats to say that outcome is any more likely than an up-day.

The S&P 500 is close to the lower trend line and the 50-day moving average so it may well bounce tomorrow.  If it does, I don’t expect it to be a durable bounce.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE fell to 41% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 18% of stocks advanced.  (I am a little unsure here because I am using Yahoo data tonight rather than Briefing.com, my usual source due to problems at Briefing.com.)

New-lows of 375 outpaced the new-highs of 49 today leaving the spread at -326 with the 10-day change in spread heading down. It is reasonable to ask whether the spread might be indicating a bottom.  The spread was about -1000 at the 1099 Oct 2011 bottom.  Spread was -45 at the 1023 July 2010 bottom. In other words, spread is not a good bottom indicator.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend.

NTSM

Thursday, the overall NTSM analysis was HOLD at the close, but it moved a lot closer to a sell. 

That’s rather meaningless now since the 1^st sell of this cycle was back at 1575 on 16 April and the most recent sell was 23 July at 1692. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Japan’s Troubles Threaten the World’s Economies…and Iceland?

JAPANESE CRISIS NEARS (Kitco Commentary)
“Japan has receded from the headlines of late but that's about to change. In the next two months, it's expected the Prime Minister Shinzo Abe will make a decision on whether to increase Japan's consumption tax from 5% to 8% in April next year. If approved, consumer spending will take a significant hit and given that it accounts for around 60% of GDP, hopes for an economic recovery could be dashed. If the tax hike is delayed on the other hand, rating agencies are likely to downgrade Japanese debt, resulting in increased interest costs - the last thing that the massively indebted country needs. International investors would also lose faith in Japan's turnaround strategy. Either way, it appears a lose-lose situation.

Much less talked about is the impact on Japan from possible QE tapering in the U.S…[and that may cause rates to rise world-wide]…only a small rise in rates would result in its government debt burden becoming overwhelming - interest rates increasing to just 2% would mean interest expense on government debt equating to 80% of government revenue.

Either of these events may bring forward a Japanese sovereign debt crisis...Unlike Greece or Cyprus, Japan matters. It's the world's third largest economy and a key trading partner to all of the large powers. How Japan plays out for the remainder of 2013 will be of critical importance to everyone.”  Story at…

http://www.kitco.com/ind/Gruber/2013-08-12-A-Japanese-Crisis-Nears.html

ICELAND – EUROPE’S TICKING TIME BOMB (Fortune)

"The inevitable unmasking of Iceland's dubious economic recovery could have severe consequences for the rest of Europe. Since 2008, the small island nation has been able to avoid an all-out economic meltdown thanks largely to government-imposed capital controls that have kept its currency from imploding. At the same time, the nation's zombie banks have managed to avoid total collapse thanks to delay tactics that have allowed them to avoid settling with their creditors.

But the walls the government and its banks erected to shield its population from the outside elements have finally started to crumble. Unfortunately, there is not much Iceland can do to save itself at this point; it will need to face the music eventually. The bigger concern is what impact another Icelandic currency crisis could have on Europe in the months ahead. After all, Iceland's spectacular collapse in 2008 helped set the European debt crisis in motion as it exposed weaknesses in the region's banking system. Another Icelandic meltdown could easily reignite investor fears, leading to yet another panic on the continent…investors will be watching what Iceland's new government does intently. If it begins to falter, the rest of Europe could be next.”  Story at…

http://finance.fortune.cnn.com/2013/08/12/iceland-is-europes-ticking-time-bomb-again/?iid=HP_LN

Just when the news from Europe has been getting better. 

MARKET REPORT
Wednesday, the S&P was down 0.5% to 1685 (rounded).

VIX was UP 6% to 13.04.

The S&P 500 is about 2% above the 50-dMA, now at 1655.  That is a point that traders will be watching for support.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE fell to 45% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 32% of stocks advanced.

New-lows of 236 outpaced the new-highs of 92 today leaving the spread at -144 with the 10-day change in spread heading down.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend.

NTSM

Wednesday, the overall NTSM analysis was HOLD at the close. 

Indicators follow:

  VIX switched to neutral today.

  PRICE is positive.

  SENTIMENT remains negative.  The 5-day sentiment value is 65%-bulls, based on funds invested in Guggenheim/Rydex funds that I track.  That’s still an extreme bullish value and that is generally negative for markets.

  VOLUME remains neutral.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Stock Market Crash, Hindenburg Omens, and Retail Sales

HINDENBURG OMENS (CNBC)
“‘There have been multiple occurrences of the Hindenburg Omen in the last several weeks,’ [Art] Cashin, the director of floor operations at UBS, said in his morning note…[He cited the following from SentimenTrader's Jason Goepfert]

‘With the latest market rally, the Omens are flaring up again. There have been 5 Omens triggered out of the past 8 trading sessions (your data may vary—we're using the same sources we've always used for historical data). That's actually the closest-grouped cluster since early November 2007.  It's extremely rare to see as many Omens occurring together as we've seen over the past 50 days. The last time was prior to the bear market in 2007.  The time before that was prior to the bear market in 2000.’” Story and video from CNBC at…

http://www.cnbc.com/id/100955925

Not since 2000?  2007? Ouch!  Hindenburg Omen is a collection of technical indicators that have usually (but not always) presaged market troubles.

BUYBACK BINGE: ANOTHER SIGN OF A MARKET PEAK - HOCHBERG (Yahoo Finance, Breakout)

“It has been six years since we last saw a spike in stock buybacks, and it has also been six years since we last saw a market crash.  While some might dismiss that fact as mere coincidence, for Steve Hochberg, chief market analyst at Elliott Wave International, it's proof that another major correction is about to occur.

"It has occurred cycle, over cycle, over cycle. It occurred 1999. It occurred in 2007. And now it's occurring again," Hochberg says of the trend that shows a spate of share repurchases is a warning sign rather than a positive indicator that the people who know the company best see value.”  Story and video from Yahoo Finance at…

http://finance.yahoo.com/blogs/breakout/buyback-binge-another-sign-market-peak-says-elliott-123944555.html

RETAIL SALES UP (Bloomberg)

“Retail sales rose in July for a fourth consecutive month, showing the U.S. economy is breaking free of the effects of higher taxes and federal budget cuts…The 0.2 percent increase followed a 0.6 percent gain in June that was larger than previously reported, according to Commerce Department figures issued today in Washington.” Story at…
http://www.bloomberg.com/news/2013-08-13/retail-sales-in-u-s-rose-in-july-for-fourth-consecutive-month.html

A 0.2% increase is not much, but it was in-line with economist’s consensus estimates at Briefing.com.

MARKET REPORT
Tuesday, the S&P was up 0.3% to 1694 (rounded).

VIX was down 4% to 12.31. 

The options boys just don’t believe that there will be a correction!

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE was down a bit to 47% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 41% of stocks advanced!

New-lows of 187 outpaced the new-highs of 130 today leaving the spread at -57 with the 10-day change in spread heading down.

Today’s reading of Internals is negative on the market and I was surprised to see them significantly down given that the S&P 500 was up.  This suggests tomorrow (Wednesday) will be a downer.

NTSM

Tuesday, the overall NTSM analysis was HOLD at the close. 

Indicators follow:

VIX is signaling “all clear” and is quite positive.
PRICE is positive.
SENTIMENT remains negative.
VOLUME is stuck in neutral.

Unless the indicators come to more agreement, the NTSM will remain HOLD.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Without Banks: No revenue Growth this Quarter

FACTSET EARNINGS INSIGHT – EXCERPTS (FactSet)
“With 90% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates (72%) is slightly below the four-year average, and the percentage of companies reporting revenues above estimates (55%) is below the four-year average. However, the percentage of companies reporting revenue above estimates is above 50% for the just the second time in the past five quarters….

…In aggregate, companies are reporting earnings that are 2.5% above expectations. This surprise percentage is below the average over the past year (4.3%) and the average over the last four years (7.0%). If this is the final surprise percentage for the quarter, it will mark the lowest surprise percentage since Q4 2008 (-62%)…Blended Earnings Growth is 2.1%, but Falls to -3.1% excluding the Financials Sector.”  Full FactSet report at…

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_8.9.13

TAKING STOCK OF S&P EARNINGS (CNBC)

“… by our back-of-the-envelope analysis, EPS growth for the overall S&P 500 would have been much closer to 0 percent if not for financials…[FactSet stated -3.1% without the Financials]
…banks are by and large reducing their loan-loss provisions and reserves. The net effect is that bank earnings and year-over-year earnings growth are much higher than they would be in the absence of lower loss provisioning. Suffice it to say that this accounting gimmickry, which has been going on for several quarters, has contributed greatly to overall S&P 500 earnings growth.  At some point, banks will no longer be able to rely on this source of earnings.”  Full story at…
http://www.cnbc.com/id/100950149

WEEKLY MARKET COMMENT, 12 AUGUST 2013 (Hussman Funds)

“Jim Chanos notes that more stocks are trading above three times book value today than at the 2000 market peak, which is largely because of a speculative runup in secondary issues. Indeed, small cap stocks and over-the-counter Nasdaq stocks have outpaced even the S&P 500 in recent months. Last week, Barron’s magazine bubbled “this is a golden era for initial public offerings,” describing the IPO market as “white hot,” featuring a flood of new offerings – mainly small cap growth ventures.

All of this enthusiasm seems rather encouraging, unless one is familiar with market history…In my view, deep losses await investors who are so willing to abandon the lessons of history, in the belief that the Fed has discovered some new economic principle and permanent safety net in quantitative easing.” – John Hussman, PhD.  Full commentary at Hussman Funds at http://www.hussmanfunds.com/

EURO AREA’S RECESSION SEEN OVER (Bloomberg)

“The euro-area economy probably edged back to growth last quarter for the first time since 2011, ending the longest recession since the single currency union started 14 years ago…While the overall outlook has improved, the recession has left the region with a youth unemployment rate of 24 percent, and parts of southern Europe remain mired in a slump.

“The external environment is really getting better, led by signs that U.S. demand is picking up,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow.”  Story at…

http://www.bloomberg.com/news/2013-08-11/euro-area-s-recession-seen-over-as-champagne-kept-on-ice.html

It is good news for the US economy to see our trading partners getting out of recession.  I commented not long ago that investors currently see no risk of recession in the US since cyclical stocks are doing well compared to the S&P 500.  In a perverse way, though, it may bring some pressure to the US markets if foreign investors begin putting money into Europe rather than the US...or worse…pulling money out of the US to invest in Europe. 

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE climbed to 48%.  Usually a value below 50% signals additional trouble for the markets. 54% of stocks on the NYSE were advancing today while the index was down slightly.  This “divergence” often indicates the next day (Tuesday) will be up. 

New-highs minus new-lows (spread) was positive again today, again, but the 10-day change in spread was still barely trending down.

Generally, I’d say the internals are neutral.

MARKET REPORT
Monday, the S&P was down 0.1% to 1689 (rounded).

VIX fell 4.5% to 12.81. 

As of Monday the S&P 500 was still 9.4% above the 200-dMA.   It was above 10% just 2 trading-days ago and that is a point that has frequently signaled a correction start. 

The index was 2.2% above the 50-dMA as of the close on Monday. Traders may be anticipating the 50-dMA will hold by buying before the market drops that far.  Obviously, if a correction is going to occur, the S&P will need to fall below the 50-day moving average, now at 1645.

NTSM

Monday, the overall NTSM analysis was HOLD at the close. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Tapering…Margin Debt…S&P 500 Failed at 1700

FED OFFICIALS SIGNAL TAPERING IS POSSIBLE AT SEPTEMBER MEETING (Bloomberg)
“Four Federal Reserve officials with varied voting records on monetary stimulus indicated greater willingness this week to begin tapering the central bank’s bond-buying program, citing confidence the economy is accelerating.”  Story at….
http://www.bloomberg.com/news/2013-08-08/fed-officials-signal-tapering-is-possible-at-september-meeting.html

7^th TIME WAS NOT THE CHARM S&P TESTS 1700 AND DUMPS (ZeroHedge)

“For the 7th time in the last day or so, the S&P 500 has tested up to the magical 1,700 level and failed. With JPY once against strengthening as carry unwinds re-escalate, we wait breathless for a deja deja deja vu repeat of the last 3 days post-European close rampfest...”   Full story at…
http://www.zerohedge.com/news/2013-08-09/7th-time-was-not-charm-sp-tests-1700-and-dumps

It seems simple enough: if the markets can’t go up (past 1700) they must go down.

I previously linked an article on Investment Watch Blog about the high margin debt.  (See…http://investmentwatchblog.com/what-do-1929-2000-and-2007-all-have-in-common-whenever-margin-debt-goes-over-2-25-of-gdp-the-stock-market-always-crashes/ )

Here’s another one from Zerohedge, on BUBBLES AND MARGIN DEBT that reports on a Deutsche Bank study regarding margin debt, crashes, with the related news coverage prior to each crisis.

STOCK MARKET BUBBLES AND MARGIN DEBT (ZeroHedge)

It is well-known that as part of the S&P 500's ascent to new records, investor margin debt has also surged to all time highs, surpassing for the past three months previous records set during both prior, the dot com and the housing, stock market bubbles. 

And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled "Red Flag! - The curious case of NYSE margin debt."

Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today…As DB says, "we prepared a collection of press articles which were published around the key events during the past financial crises. Our key finding is straight forward. Irrespective of the publishing date, the articles read alike throughout the two major crisis periods, i.e. the “new technologies market equity bubble” (1999-00) and the “Great/Global Financial Crisis” (2007-08).  Most interestingly, literally the same content can be found in todays’ press.”  Full story (with press examples) at ZeroHedge at...

http://www.zerohedge.com/news/2013-08-09/stock-market-bubbles-and-record-margin-debt-repeating-history-ignoring-all-warnings

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE remained 46%.  Usually a value below 50% signals additional trouble for the markets. 49% of stocks on the NYSE were advancing today. 

New-highs minus new-lows (spread) was positive today, again, but the change in spread was trending down. Generally, I’d say the internals are weak and giving a downward signal, but not a very strong one.

MARKET REPORT
Friday, the S&P was down 0.4% to 1691 (rounded).

VIX was UP 5% to 13.41. 

Cyclical stocks are outperforming the S&P 500, so investors think there is NO chance of recession any time soon.  Still, as we noted in Wednesday’s blog (COLAS: TIME TO GET BEARISH ON STOCKS), earnings are a concern.

NTSM

Friday, the overall NTSM analysis was HOLD at the close. 

MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.